Thesis at a Glance
momentum-code is straightforward by design: scan a curated 24-stock universe of U.S. large-caps — spanning tech, financials, healthcare, consumer, energy, and industrials — and buy the top positive daily movers, capped per position. No shorts, no leverage, no macro overlay. The appeal is clarity: if the market is trending up, this strategy wants to be in the stocks leading that trend.
Backtest Performance
Over 451 days (roughly mid-2024 to mid-2026), the strategy returned 19.76% on paper, equivalent to a 10.6% CAGR, with a Sharpe ratio of 0.65 and a maximum drawdown of 20.48%. Final equity came in at $11,976 on a starting base, with only $5 in total fees — a reflection of the light 5-trade count across the full period.
That 20.48% max drawdown is the number that deserves attention. For a strategy holding well-known mega-caps, giving back a fifth of portfolio value peak-to-trough is a significant stress test, and investors should weight that against the headline return.
Fold-by-Fold: Uneven but Mostly Positive
The walk-forward validation split the period into four sequential folds, and the picture is mostly encouraging — with one notable soft patch:
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +15.38% | 2.47 | 6.12% |
| 2 | Jan 2025 – Jul 2025 | +3.27% | 0.46 | 16.55% |
| 3 | Jul 2025 – Dec 2025 | +12.18% | 2.31 | 5.21% |
| 4 | Dec 2025 – May 2026 | +13.71% | 1.93 | 6.32% |
Folds 1, 3, and 4 are genuinely strong — Sharpe ratios above 1.9 with contained drawdowns. Fold 2 is the outlier: a 16.55% drawdown with a Sharpe of just 0.46 suggests momentum signals during that volatile stretch produced real pain before recovering. The most recent fold (Fold 4, which serves as the out-of-sample period) came in at 13.71% with an OOS Sharpe of 1.93 — a positive read, but one that follows an already-strong backtest, which leads to the core concern.
Validation: Four Positive Folds, Still a Fail
The strategy did not pass the platform's automated validation gate. All four folds were positive — but the Deflated Sharpe Ratio (DSR) of 0.338 is the deciding factor. DSR adjusts the Sharpe for multiple trials (six in this case) and non-normal return distributions. A DSR below 0.5 indicates that, after accounting for the number of parameter configurations tested, the edge may not be statistically robust. The PSR of 0.811 is more encouraging — suggesting an 81% probability the true Sharpe is positive — but the DSR's harsher accounting wins the gate check.
This is the right call. Six trials across a relatively short history is exactly the scenario DSR was designed to penalise.
Live Activity: Quiet June
Since early June, momentum-code has executed no new trades. Daily scheduled runs from June 22–29 consistently logged zero executions, with one to three signals rejected each session. The paper portfolio has drifted from roughly $9,562 to $9,484 over that week — mild negative drift on the current book (XOM, NVDA, BAC, HON, MSFT, entered late May and early June).
The rejection pattern could mean the universe isn't generating clean momentum signals in current market conditions, or that position caps are already filled. Either way, the strategy is conserving cash ($608) rather than forcing trades.
Risks to Watch
- Drawdown tolerance: A 20% max drawdown in a large-cap-only universe is higher than it looks. A concentrated momentum bet during a sector rotation or broad sell-off could accelerate that figure quickly.
- Low trade count: Five trades over 451 days limits the statistical confidence of any return or win-rate estimate — the backtest is more a proof-of-concept than a law-of-large-numbers result.
- Signal drought: Weeks of zero executions in live trading raise the question of whether the momentum filter is too restrictive for normal market conditions, or whether the strategy is simply waiting for the right environment to re-emerge.